24 July 2006 | Author: C. Philip

Internet gambling could be running out of luck

Last Sunday in Dallas airport David Carruthers, the chief executive of Betonsports, was surrounded by FBI agents. For those that aren't involved with online gambling, Betonsports.com is one of the world's biggest internet gambling websites.

The arrest of David Carruthers represented the biggest threat to the worldwide industry of Internet gambling which has grown in eight years from nothing to a $12bn industry. Carruthers was arrested on 22 charges of racketeering, conspiracy and fraud.

American authorities are cracking down on internet gambling and this could spell disaster for a string of businesses that have recently floated on the London stock exchange.

Under the US's 1961 Wire Act, taking sports bets on the telephone is illegal. By implication, so is receiving punters' money via the web. This legal grey area is about to be truly tested.

Fictitious identities were used by undercover agents to open accounts with Betonsports.com recently. The indictment alleges that Betonsports have illegally been laundering money and demands a forfeit of $4.5bn in cash plus properties belonging to ten other co-defendants.

It has been believed by the big guns of many internet gambling companies that the US would turn a blind eye to online gambling. Companies such as 888.com and Partygaming, however, have always made it clear that some may consider their activities to be ruled as illegal. Despite this, investors have queued up to back floats on the stock market. Last week's events have now made the gambling sector of the stock market plunge by more than $1bn. Executives of the big online gambling firms have been rescheduling business meetings in America due to fear of arrest and the panic has caused a high profile industry conference in Las Vegas to be cancelled. John Kelly, the chairman of Cala Coral Group has said: "This is the single most important challenge to the internet gambling industry since it started."

Who's who in online gambling

• Sportingbet - This company founded in 1997 has most to fear from the US authorities. Much of its $2bn turnover comes from the US. They have refused to make any recent comments.

• Partygaming - It has been bail-out time for Partygaming, who have sold shares worth nearly £250m over the last two months. Partygaming floated in London last year despite concerns over legal risks associated to the US Wire Act.

• 888.com - Has now diversified from the US market which accounted for 95% of its revenues six years ago. Now the US percentage is around 55%.

• William Hill - There were nervous moments for William Hill in 2002 when references were made to their business dealings in the US. Today William Hill gets less than 1% of its business from the US.

• Ladbrokes - This is the biggest betting firm in the lucrative Asian market and although it takes no bets from the US, the issue is still under review.

With an estimated 2,300 internet gambling sites, online gambling is an enormous market with an estimated industry turnover of $12bn annually. The recent clampdown in the US may affect companies based anywhere if they take bets from the US. Last week has been a huge alarm call to those in the online gambling industry and the coming months will reveal how the future is likely to unfold for the main firms. And who said the internet wasn't sexy...

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